Considering a buy-to-let mortgage?

Here’s what you need to know if you’re starting out

A buy-to-let mortgage is a unique loan designed specifically for individuals investing in property to rent out. It differs from a residential mortgage, primarily used for purchasing a home.

In this article, we delve into the intricacies of buy-to-let mortgages to help you determine if this kind of investment is right for you.


Borrowing limits on a buy-to-let mortgage

Unlike its residential counterpart, a buy-to-let mortgage considers the property’s prospective rental income. Generally, lenders require the rent to be at least 125% of the monthly mortgage payments (based on interest-only repayment). So, if your mortgage costs £800 per month, you’ll need to charge at least £1,000 in rent.


The deposit requirement for a buy-to-let mortgage

As with any mortgage, the larger the deposit, the more competitive deals are available. Usually, lenders expect a deposit of around 25% or more of the property’s value. However, some may accept a minimum deposit of 15%, provided the rental income covers it.


The importance of a Tenancy Agreement in a buy-to-let property 

Private landlords renting out a property serving as the tenants’ home typically need an Assured Shorthold Tenancy (AST) agreement. Mortgage lenders insist on an AST and may request a copy during application. For more information on tenancy agreements, visit the GOV.UK website.


Property types that may pose challenges for a buy-to-let mortgage

Lenders evaluate each property individually for suitability and safety. They often impose restrictions on newly built flats, ex-local authority properties, high-rise flats, flats above commercial premises and holiday homes. Expert advice is crucial in navigating these restrictions and finding suitable lenders.


First-buyers and buy-to-let properties

Yes, first-time buyers can invest in buy-to-let properties, but their mortgage options may be limited. Lenders may require first-time landlords to own their residential property for a certain period or any property, including another buy-to-let property, while residing in rented accommodation.


Understanding Houses in Multiple Occupation (HMO)

An HMO is a property rented by several household tenants, sharing facilities like toilets, bathrooms or kitchens. Depending on the property and location, an HMO licence may be necessary. Contact your local authority to determine if your property qualifies as an HMO and if a licence is required. Getting a mortgage on an HMO property may be limited, but obtaining professional mortgage advice can help you find suitable lenders.

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